On September 30, the first of three earnout measurement periods closed on e.l.f. Beauty's purchase of rhode, the skincare brand founded by Hailey Bieber. e.l.f.'s latest quarterly report says it expects to pay any earnout "annually within 45 days after each measurement period ending September 30, 2026, 2027, and 2028 in which the earnout milestones are achieved."
So if a year-one payment is owed, e.l.f. expects to pay it by mid-November. Forty-five days after Sept. 30 is Nov. 14. And here's why every founder selling a brand should watch: when the deal closed in August 2025, e.l.f. valued that earnout at $7.1 million. By June 30, 2026, it carried it at $80.8 million. Same contract, very different number. The devil is in the details.
Takeaway #1: The two most important words are "if at all"
FROM THE CONTRACT
"...the right to receive the additional cash consideration (the “Additional Cash Consideration”), if any, that may become payable by Buyer (if at all) upon the terms and subject to the satisfaction of the conditions set forth on Exhibit D..."
What it means for you. e.l.f.'s 8-K describes the deal as $800 million at closing, subject to adjustments. Of that, $600 million was cash and about $200 million was e.l.f. stock. (e.l.f.'s later 10-Q puts the purchase price at $897.5 million, mostly because by closing day those shares were worth more than when the deal was signed.) The earnout sits on top: up to $100 million for hitting "annual revenue projections prepared by rhode over a three-year period," plus up to another $100 million for beating them "by a specified amount."
Notice whose projections they are: rhode's own. That can help a seller, since the bar starts from your plan and not the buyer's. It also cuts the other way. If you pitched a rosy forecast to get a higher price, you now have to hit it. But the actual earnout rules live in Exhibit D, and Exhibit D isn't attached to the public filing. That's normal. It also means nobody outside the deal can tell you exactly how year one gets measured.
Your move. Founders: "if at all" is standard buyer language, so don't waste your capital fighting it. Spend it on Exhibit D: the metric, whose forecast sets the target, the accounting rules, and who decides a dispute. Get all of it in the signed agreement, not in a follow-up email.
Takeaway #2: The buyer's books are not your check
FROM THE 10-Q
"As of June 30, 2026, the contingent consideration was remeasured to $80.8 million, driven by the outperformance of rhode's revenue results since the acquisition date, and a revised upward forecast for the remainder of the performance periods."
What it means for you. Under U.S. accounting rules, e.l.f. carries the earnout at fair value and, in its words, "evaluates the fair value of the contingent consideration each reporting period and adjusts the carrying value as new information becomes available." e.l.f. booked a $57.6 million increase in its fiscal fourth quarter of 2026 and $16.1 million more in the first quarter of fiscal 2027. It splits the liability into $28.2 million current and $52.6 million long-term. The figure comes from a Monte Carlo simulation based on projected revenue. It's the buyer's estimate, not a promise to pay. Same note, a few lines later: "If the earnout milestones are not met, no payment will be made."
Your move. Sellers: ask for an earnout statement with backup after each period, a right to see the books behind it, an objection window that starts when you get the backup, and an independent accountant to settle disputes. If your buyer is public, read its filings each quarter. The fair value line is a free signal of what the buyer expects. It isn't what the buyer owes.
Sample wording: "Within 45 days after each Measurement Period, Buyer will deliver an Earnout Statement with reasonable supporting detail; Sellers' Representative may object within 30 days after receiving it."
And always remember, don't sign it till you read it, my friends.
General information, not legal or tax advice. Reading this doesn't create an attorney-client relationship. Earnout terms vary deal by deal, so get advice on your own deal.
